Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York city, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision in global business, the dream drivers that have made the NYSE an indispensable institution for global growth for more than 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism right here, right now at the NYSE and at ICE's 12 exchanges and seven clearing houses around the world. Now here's your host, Josh King, head of communications at Intercontinental Exchange.
Josh King:
How much do you pay for that 24 carat wedding band? How much do you pay for that ounce of precious metal you store in a vault or keep hidden in your go bag if things go bad? N.M. Rothschild in the 19th century, the wealthiest man on earth once said famously, "I know of only two men who really understand the value of gold: an obscure clerk in the basement of the vault of the Banque de France, and one of the directors of the Bank of England." Unfortunately, Rothschild said, "They disagree." A century ago, the bank that bears his name, N.M. Rothschild and Sons began a tradition to answer that question. Today, we are recording in the ICE Benchmark Administration offices in London, England, the UK, the modern arena charged with setting the gold benchmark, our conversation with Stelios Tselikas on all things gold, right after this.
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Josh King:
Every day at precisely 10:30 a.m. and 3:00 p.m. Greenwich Mean Time here in London, Intercontinental Exchange holds a fully electronic, fully transparent auction to establish the global benchmark price for gold across the world. It's known as the London Bullion Market Association gold price, LBMA. The auctions were launched more than three years ago by ICE Benchmark Administration to replace its predecessor, the century old London Gold Fix. Sounds quaint just saying it. The auction concluded just now, very orderly as usual, not like buying live cattle in Fort Worth, that's for sure. The transformation of the benchmark for gold prices bear all the hallmarks of the same formula that has allowed Intercontinental Exchange to grow from a small energy trading exchange in Atlanta into a global powerhouse, operating exchanges, clearing houses and information services in places like here in London, New York, Chicago and Singapore. Today I'm joined by Stelios Tselikas, Chief Operating Officer of ICE Benchmark Administration, who joined the company a year before the LMBA gold price was established. He was previously the treasurer and risk manager for Neptune Lines, the famous Greek shipping firm, responsible for moving cars and heavy cargo from point to point across Europe and the Mediterranean. Welcome to the ICE House, Stelios, London style.
Stelios Tselikas:
Hello, Josh. Thank you for having me.
Josh King:
It's good to have you here. I've been coming to London on and off for many years. It's been your full-time home since 2014. What was your voyage that got you here?
Stelios Tselikas:
Yeah, it's an interesting one. I started working for the French Treasury in Paris actually before moving into the banking sector and then moving into shipping, as you said. I spent some time being the treasurer and the risk manager of a shipping company, which has some really interesting parallels with what we're doing here and then moved to London to join Intercontinental Exchange and mainly ICE Benchmark Administration.
Josh King:
Greece has a great shipping tradition, Stelios. We of a certain age think of the shipping magnet who amassed the world's largest privately owned shipping fleet, Aristotle Onassis, and was one of the world's richest and famous men. Was your family in shipping for a long time?
Stelios Tselikas:
No, not at all actually. We are more in the medical side, but I've been interesting in that market for almost a decade where I joined and I've been working more on the financial side, but shipping is a business of tradition as you said, and back to the gold price element, there's also a lot of tradition in that process. So when I moved to the shipping world, it was a period where that market has been transforming itself, using technology in order to optimize routes, in order to reduce cost, fuel cost. And that same principles of transformation is something I very quickly realized that was very present in the ICE culture. So when I joined here, I realized that what was happening in just one industry was happening across industries as a main business, the core business of the group.
Stelios Tselikas:
So back to the gold market, when ICE Benchmark Administration got into that market, the aim was exactly to bring that transformation and that efficiency and technology into the market. So it has been that kind of transformation from analog to digital, and that's the same thing we've experienced in the shipping market. So those two markets, even though very different on the first view, they're quite similar. Those are markets of tradition, but at the same time, they're global markets, they're markets where the assets are really tangible. And of course they appeal to the entire world. Transportation of goods is as important as, as you said, your wedding band or the gold watch that someone is buying as a gift to someone else. So I've been seeing those two industries having common threads and that transformation modernization to technology has been very present.
Josh King:
Were your parents disappointed that you didn't become a doctor?
Stelios Tselikas:
So my entire family, my brother and sisters are all in the medical profession. I think I'm probably yeah, the only one that has avoided to be in that market. And it's interesting that when I'm trying to explain what I'm doing, I'm trying to always to explain that I'm working for a technology company serving the financial markets. And when I'm trying to say what we are doing here, the only time where I get their attention is when I'm talking about gold.
Josh King:
I looked at some of those pictures of Neptune Lines ships these days, filled with cars, many layers high, beautiful vessels, so efficient. I looked at some of the trading routes that moved through the Mediterranean and around the European continent. For you as a person with a background in efficiency and economies, was that a fascinating thing to be able to do, to be able to look at how technology and energy efficiency can help shave off that few percent to make the company more efficient?
Stelios Tselikas:
It's fascinating how you can just have optimizing a little thing that has a huge impact in the bottom line of a company. Again, it's one of those business lines where you can really see the impact of what you're doing. And transporting goods is something that we do every day without even realizing. Now, technology and all the new tools that people can use, and they've started to use them actually are a huge, it's a big change for that industry. And that industry used to be very traditional, very family oriented, especially in Greece, but now that has moved to a very organized and efficient tool to optimize your route. So the new design of ships, which are a bit more aerodynamic, the better machine learning algorithms that you can use in order to optimize your routes so that you always have fully loaded chips that can move around the oceans. Those are factors that we're really keen to optimize. And that was part of my function actually, combining the financial and the technology aspect in order to have a successful and efficient business model where I was.
Josh King:
What were the things that shaved off the most cost in shipping during your tenure and things that you said, "Aha, this can help increase the bottom line for Neptune."?
Stelios Tselikas:
So that's a great question. The real elements, it's sometimes you need to, it's not always going from A to B in the fastest way actually. You can add a stop somewhere that will optimize your route, just because you are loading the vessel and you're not just traveling without something to carry around. And sometimes going from A to B within a straight line seems like the obvious thing to do, but that's not always the most efficient one. And again, back to our business, we are trying to find a balance wherever technology can serve clients and serve the process to be as optimal as possible.
Josh King:
So now turning to our business, I mean as I thought about global trade walking over here from the hotel this morning, shipping goods and trading gold are two of the oldest businesses in the world. And they are historically intertwined. What's the common thread between the two spaces?
Stelios Tselikas:
So again, those two assets are very tangible and they're very global. Transporting good is a global business. Gold is something that everyone around the world is using as a global currency. It's accepted. It has been used since 650 before Christ, and that's something which she's very present around the world. At the same time, the shipping business transporting good is something that we do every day and has been done forever.
Josh King:
We talked a little bit about some of the changes in the shipping business that you witnessed with your time at Neptune, but with your front row seat now in the gold price area, how has the movement of goods corresponded with the trading of bullion and their transformation and modernization through logistics and technology? You talked about shipping, but how does that manifest itself in gold trading?
Stelios Tselikas:
So gold trading today is something which is fully modernized. The technology has a key aspect in it. We on our side, when we're administering a benchmark, which is a gold price, which is used around the world, we've been through a transformation on technology and process as well. And we're going to talk about that, but the thrust of it is that using that technology in order to bring efficiencies on how to trade and how to disclose the prices and how to modernize the process such as providing transparency, auditability to the entire market has been key to that transformation again, from analog to digital.
Josh King:
Let's paint a picture for our listeners of a little bit of history. The Gold Fix traces its roots back almost a century to 1919. And there were five principal gold bullion traders and refiners, N.M. Rothschild and Sons. I mentioned Rothschild earlier in the introduction, Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu & Co. and Sharps Wilkins. They met in this wood paneled room, you showed me that picture of it earlier. It was festooned with portraits and they performed the first London Gold Fix. Why was it needed back then 100 years ago in 1919? Paint the picture for us.
Stelios Tselikas:
So almost a century ago, you had five banks, five participants that were meeting daily in the offices of Rothschild in London, in the heart of the city of London, which is just a couple of roads on the back of the Bank of England and the Royal Stock Exchange. So they would run an auction every day in order to determine the gold price, that the word you use, the physical gold price. The way they would do it is that those five members were sitting around the room. One person was a chairman. That chairman would be rotating on a yearly basis. So every year, someone else would be the chairman, one of the representatives of the banks, and they would start, the chairman would suggest a price, and the other members will express their interest in either buying or selling gold. So for example, the chairman will start with a price of $1,200 per troy ounce.
Stelios Tselikas:
And someone would say, "I would buy 100,000 ounces at this price." Someone else would say, "I would buy 50,000 ounces at this price." Then once everyone would express their interest, they would see where they stand. If the, if as we said, there's 100,000 versus 50,000, that would suggest that another round would be necessary at a higher price, because it would be more buying than selling. Then that process, that derivative process would continue until a balance would be reached. So at the end of that process, that would be the price that would be communicated to the world as the gold price. So that would happen twice a day at 10:30 a.m. and 3 o'clock in the afternoon in London time in order to determine that price. That process continued for almost a century. And that went even through when the computers were invented, and that continued up to 2004, where that same process continued, but it just changed to a conference call. The reason for that was very simply that some of the banks moved to Canary Wharf, and it was not as easy to send someone twice a day in the city of London to call that auction.
Josh King:
Whether it happened in that wood paneled conference room or the conference call between the city and Canary Wharf, that sounds like a pretty efficient process. It worked for almost a century. Why screw with tradition? What was the need for change in 2015?
Stelios Tselikas:
That's a great question, Josh. The reason why the end of 2014, where the market had to move is that one of the banks in 2014 was fined for misbehaving in the process. So there was a need to bring again, transparent and integrity and robustness to that process so that everyone would participate being confident on the process. And that's when the London Bullion Market Association, the LBMA has launched their effort to trying to evolve the price to a full electronic auction. And that's when ICE Benchmark Administration started to run those full electronic auctions, transparent and audible on a technology platform that we have.
Josh King:
So I'm looking at this picture of the old auction, and I see these small Union Jack flags in front of everybody's position, and they had a unique purpose in that old auction, didn't they?
Stelios Tselikas:
They absolutely did. When one of the participant did need a bit more time to add up their interest, so just to make sure that were right on the numbers, they would raise that flag and say flag so that the process would stop for a couple of minutes to make sure that they could add up all their numbers. That same process continued to exist even through the conference call where there wasn't a physical Union Jack flag, but someone will interject saying, "Flag.", which would mean we're pausing the auction for a couple of minutes so that people can verify their numbers and continue.
Josh King:
Can someone still pause an auction either by raising a little British flag on their desk or yelling out flag on a conference call? Can this still work like this?
Stelios Tselikas:
So from 2004 until 2015, when we started managing the auction, yes, that was there. Someone would say flag, the word flag, and that would stop the auction for a couple of minutes. People would recheck their numbers and add up the interest, and the auction would then resume. Today, that same process does not exist because we are in a full electronic auction. And there is a point where we call our auction a blind auction. That means when you participate, you don't know what the others are doing. That also takes away the need for pausing the auction or to react to the others' actions. So today we do not have a flag anymore.
Josh King:
So it starts at 10:30 a.m. and also at 3:00 p.m. Roll this out. How long does it last each time? What is the action? Because prices during the auction are determined by an algorithm. And it seems like a lot less dramatic than that vision that we just made out, an algorithm, like how did the market react from moving to a phone call based system that you described, which is so steeped in history to this electronic platform?
Stelios Tselikas:
So, tradition is key, as we said before, and we work hard with the market to evolve the process in a partnership. And that's how we, and that's how ICE is working. We're trying to provide the efficiencies and the technologies to the market, but trying to meet their needs. So we work in partnership with them, broadly state of the art technology, work with the LBMA a lot in order to design that process.
Stelios Tselikas:
But that process was very well received because it was answering to all the requests and the requirements that the participants had. So now the auction is a full electronically traded auction, where people are putting their interest in a WebICE platform, which is the proprietary platform of the Intercontinental Exchange. And they can enter their orders. Those are 30 second rounds. At the end of the round, the auction pauses, we check the imbalance to see if there is buying and selling that could be matched. If there is an existing imbalance, we would continue to a second round, an additional round until we reach that balance. So the process is, the mechanism is the same. The price discovery mechanism is the same. It's an auction based approach where people are reacting to a price, but all that now is fully electronic. There's an algorithm that determines the initial price based on market data and other related markets. And that has been working very well because everything is in line with what the participants would expect.
Josh King:
If you think back to when ICE Benchmark Administration began this auction, was there resistance?
Stelios Tselikas:
There was. There was a need for the market to evolve. The London Bullion Market Association was endorsing that transition and evolution. So there was not resistance in evolving that process. We just had to make, to find the right solution and the right balance for that market to operate well. You have one proof why that evolution worked well is that the number of participants has more than tripled since we took it over.
Josh King:
Some said when this started that it might take 10 years to evolve the auction. I think ICE Benchmark Administration made it happen in 10 weeks. How did you introduce those reforms so quickly? How are you so successful in doing this?
Stelios Tselikas:
So there has been a lot of work done before we implement the solution. So we spent quite some time with the market, working with them in order to design that solution. We had the full support of the LBMA as well, that was driving that process and endorsing that process. Nevertheless, the main changes and reforms we've introduced from day one was to provide the technology, the trading platform, which is WebICE as we know it, but it has full audit trail and transparency. But on top of that, we had, we've designed, redesigned the auction process to a 30 second round and being a blind auction where you do not know what the others are doing. On top of that, we've invested a lot of time on governance. So we've created an oversight committee where every user, every stakeholder is represented in that committee.
Stelios Tselikas:
So that's a key instrument for us in order to make sure that what we are doing is also good for the market and for the benchmark. In addition to that, we have a surveillance team monitoring the activity every day. So we have a dedicated team that is monitoring the market, but also the inputs and the orders that we're getting into the auction. And finally, there's a transparency element where we publish at the same time for everyone, the auction, the auction activity, the price, the volumes and the number of participants. We also added the fact that we're publishing the price in 16 currencies. So we are publishing the price in dollars, but also in another 16 currencies, which are indicative, but are coming with dollar price.
Josh King:
Talk to me about the importance of clearing in this process as well.
Stelios Tselikas:
So clearing was one element that we've introduced at the later stage in order to allow us to expand the participation. Our mandate was to create a robust process. In order to achieve that, you need to grow participation. Clearing was an element that would allow us to do it. The reason is when you have seven or eight or nine participants and you're adding a new participant, that new participant has to have credit lines with everyone. That may be the case already if you're talking about established partnerships. Nevertheless, the more you expand that pool of participants, the harder it is to get those credit lines in place. By producing clearing, we've allowed people to trade with each others without having those credit lines already in place, because you need to have a clearing member, and the transaction would be clear through the ICE clearing house. Now that allowed us to increase participation to more participants, but also to a different kind of participants. So we have brilliant banks that are present in the process, but we also have financial intermediaries. We have liquidity providers. We have a wholesaler that is in there. So that was a key success for us in order to grow the participation and make the process even more robust.
Josh King:
Back in this wood paneled room that we're looking at, the five members of the old auction that started in 1919, just five direct participants. So when IBA took it over, you've said it's increased by three times. It's been tripled. What were the issues involved in increasing the participation? Was there resistance to the existing members to say, "We don't want more people at the table or participating in the blind auction.", or were more participants welcomed? And how did you recruit them and get them into this group, those that you just mentioned?
Stelios Tselikas:
So it's a great question. When we took it over, there were only four participants left. The idea of having more participants in the room or in the process was more than welcomed by the market. The real problem was that in order to become a participant, a new participant, you need to be sure that you have all the protections and the necessary tools to do it successfully in a transparent way. And that's what we provided. So we worked a lot with the potential new participants, trying to explain all the benefits of the new process, the governance, the surveillance, and the system that we provided to make sure that would fit their needs. So there was not a resistance in adding new people. It's actually the opposite. We were trying to increase that number, and we're still trying to do. We have a very solid pipeline of new participants that we are working with that are interested in joining the quoting of prices today
Josh King:
Is the level of participation in the auction right now consistent?
Stelios Tselikas:
So today we have 14 participants in gold and 11 participants in silver. Those participants may participate every day or not. There's not an obligation actually to trade every day, but the numbers are very consistent on the number of participants for every auction, at every auction. But we're still trying to grow that participation to make that market even bigger.
Josh King:
Is there any upper limit to the number of participants? And if you could identify the types of participants that should be in that aren't now, who would you like to see?
Stelios Tselikas:
That's a great question. There's not an upper limit per se. We are working with different types of participants to join the auctions, but there are two points actually. One is that someone can join as a direct participant sitting on the table as you said before, or you could join as a dark participant, i.e. going through one of the existing participants. That's pretty much the DMA model, the access model that we used in other markets as equities, for example. So we are trying to promote that model as well in order to get end users such as refiners or miners that could potentially join that process.
Josh King:
We talked about those that are at the table, but Stelios, there is no table. This is a completely electronic auction. Is there anything that hearkens back to tradition?
Stelios Tselikas:
Well, there is no table, that's true. Nevertheless, there are two points that are very important that are still there. One is that we provide two liquidity points per day, where buyers and sellers can meet in order to exchange physical gold. And those are the deepest liquidity points per day, where someone can do that. The second point is that the price discovery mechanism, the auction mechanism is still the same. People are reacting to the price, expressing their interest in buying or selling gold at that price. So the two fundamental elements of that process are still here. We have just, I would say just, provided all the necessary tools and mechanisms to make that process work well today.
Josh King:
And then looking to the brave new world, the London Bullion Market Association this year put out a call for proposals to use the blockchain. So as its CEO put it, "Investors can be assured their purchase of goal bars addresses supply chain risks, as well as protecting them against issues arising from fraud and breaches of security." What's the progress in the blockchain and gold, and how might that affect our LMBA gold price?
Stelios Tselikas:
The LBMA is working a lot on the provenance of gold bars to make sure that the gold that is used is coming from good sources and to protect the investors. They are currently assessing the use of blockchain in order to underpin that process and make sure that would provide the protections and transparency to their investors. They're in that process right now, as we speak. And we would hear very soon about the evolution of that process, but blockchain can be mingled with that entire process in order to provide additional transparency. We, on our side, on the LBMA gold price, that is not directly affected by blockchain at this stage.
Josh King:
After the break, Stelios and I canvas geopolitical tensions from Brexit to the simmering trade skirmishes between the United States and China and how they may affect gold prices. That's right after this.
Speaker 3:
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Josh King:
Welcome back. Before the break, Stelios Tselikas, Chief Operating Officer of ICE Benchmark Administration was taking us through how the London gold price has modernized, from planting flags in a smoke filled room to a lit electronic option with increased participation. Before we go on, Stelios, tell me a little bit more about IBA, ICE Benchmark Administration. You also oversee various benchmarks, including ICE LIBOR, ICE swap rate, and the LMBA silver price that you mentioned earlier. We're sitting in your office right now. What's everybody up to on this floor?
Stelios Tselikas:
So ICE Benchmark Administration was created at the end of 2013, in order to administer significant benchmarks for the markets. We started with ICE LIBOR as you said, and then the very quickly, that business grew to take on board ISDAFix, which became ICE swap rate, and then the LBMA gold price and silver prices. We also administer a part of the crowdsourcing facility for ISDA SIMM, which is initial margins for non-cleared trade. So our business day in day out is managing benchmarks, making sure that the price that we're publishing, the prices that we're publishing are robust and with integrity.
Josh King:
I'm sure you and your colleagues here in London feel an enormous sense of responsibility for what happens in your auction, what happens in your benchmarks, because so many decisions around the world are based on these few sets of prices that you're putting out.
Stelios Tselikas:
It's fascinating. One of the aspects of our job, day to day job is really rewarding is that we know that what we are doing in here has a real impact to the world. And not only on a financial basis, the real economy is based on the prices that we're publishing. So yes, everyone is taking that very, very seriously, and we are very proud of what we're doing here.
Josh King:
So much of what is happening outside these walls in the United States today, in China today are impacted by these benchmark rates and also impact the benchmark rates themselves. It's said that there are seven drivers of the gold price: inflation, interest rates, stock markets, geopolitics, the dollar, oil prices and Asian demand. How do you see these playing out in the LMB during the auctions every day? I mean, you come to work, you see what's on the broad sheets, what's in the newspaper papers and just say, "Boy, the auction's going to go crazy as a result of that."
Stelios Tselikas:
So that's a great question. We obviously monitor all the factors that you said before running our auctions on a daily basis, every minute actually, to make sure that we understand what's happening around. Now, what we really do as an administrator, is to make sure that we will provide the platform and the process to make sure that the prices covering mechanisms will work as expected. So we have all the protections in place, people watching the auction, where they're running and the tools, the necessary tools to make sure that process will run smoothly every day. We do not really have a stake on the price itself, but what we have a stake in is making sure that the process runs and provides a benchmark that can be trusted by the users. So yes, we are abreast of what's happening in the news on the market, but we're trying to factor that in the process on how we design our tools rather than the price itself.
Josh King:
And yet the price itself and gold itself is sort of anxiety insurance. The higher gold price might correlate to the higher anxiety based on any of those factors that we just talked about. On average, I guess about $100 million of gold is traded in each auction since the LMBA gold price was established. It's become the world's most liquid trading opportunity for wholesale spot gold. What happens on one of those days when those headlines sort of jump out at you and the volume of gold trading spikes significantly? How is the market able to absorb these big news events?
Stelios Tselikas:
That's a great question. And that's my, personally my job where every day where I see that there are real market moving news, I'm of course more alerted in order to make sure that everything goes smoothly. But for example, yesterday in the afternoon, the auction had 200,000 ounces on each side almost in the afternoon as interest. So 200,000 ounces buying and selling orders at the end. So that's almost $0.5 billion of interest expressed in the auction. Since we've started in the last three and a half years, I think the highest volumes we've ever seen were more than half a million ounces on each side, which is more than $1 billion of interest in single auction. Yesterday, the price discovery mechanism worked as expected and the auction runs smoothly, which is exactly what you would expect in my position and what you would wish for. Nevertheless, I must admit, when there are moving events, it's a bit more interesting I may say for myself.
Speaker 5:
Now let me congratulate all those who took part in the Leave campaign for the spirited and passionate case that they made. The will of the British people is an instruction that must be delivered. It was not a decision that was taken lightly, not least because so many things were said by so many different organizations about the significance of this decision. So there can be no doubt about the result. Across the world, people have been watching the choice that Britain has made. I would reassure those markets and investors that Britain's economy is fundamentally strong.
Josh King:
So Stelios, here's a headline from The Guardian on June 24, 2016, which history reminds us was the day after the UK voted to leave the EU. That was the Brexit. Here's the headline from The Guardian. It says, "Gold jumps 22% after referendum result." Sub-headline, "Overnight surge in trading price is the fastest move against sterling in history and shows panic. Sweeping markets, says gold expert." The traditional safe haven in times of market turmoil, Stelios, what was that like?
Stelios Tselikas:
That was a very interesting day for us. We all came in very early at five or six o'clock in the morning in the office, just to make sure that everything is working and monitoring the events throughout the day. So on that day in the morning, the auction was five rounds. The price gained $2 and it settled at just above $1,300. Volumes were normal, around 80,000 ounces on each side. But the previous day in the afternoon, which was the voting day, the 23rd of June, the price was $1,260. So we had a $50 increase overnight, and that was on the back of the results of the Brexit. So again, the day passed by. The afternoon auction was a non-event in that sense, because it was just one round and everything settled as expected, but those jumps are again, what we've discussed previously, that there are days where the market events are driving the gold price, and you just need to make sure that everything will work as expected. That day, even though the market moved by a lot, the mechanism and the process worked exactly as expected.
Josh King:
Similarly, Stelios, that same year in November, gold surges 5% on news in the afternoon that Donald Trump is defeating Hillary Clinton, but it fell just as fast when he got to the podium early the next morning and made conciliatory comments, perhaps that things were not as stark as they seemed. Gold prices are that sensitive to sentiment, just the tone of a person's voice coming out through a microphone.
Stelios Tselikas:
Again, as you said, we could see the price of gold climbing above 1,300 when the President Trump was getting elected, so throughout the night. And then after the speech, you could see the gold retracing immediately just below 1,300. So yes, the gold price is reacting to speech or to market news immediately.
Josh King:
So the next day, votes are in. President-elect Trump is going to take over for President Obama. An analyst told the Reuters Global Gold Forum, and I quote what Trump said, "Calm the markets and help boost the dollar eroding gold's gains, but he said, but the Trump win is still essentially bullish for gold." So two years on, we're now in September, 2018, where has gold gone?
Stelios Tselikas:
So it's a great comment. So as we've said, gold yesterday was around $1,215. When Donald Trump was elected, the price was very close to $1,300. So since that comment, I think gold has gone down by almost $80. So it's not really as bullish as expected at that time, but there is that correlation between USD dollar and gold, which is very, very present in the market and the impact of any monetary policy decision or every presidential speech on the dollar will have an impact on gold as well.
Josh King:
Beyond what's happening in North America with U.S. dollars and the comments by president Trump and things that are happening in the United States, let's talk about one of those other factors that we mentioned among the seven that affect gold prices, Asian demand. The IBA now has three Chinese banks among your direct participants in the auction. And the country is the largest consumer producer and processor of gold in the world. How important is the east versus west when it comes to gold price?
Stelios Tselikas:
There is a very developed gold market in Asia. And you can also see that in India as well. The gold is very, very important across the globe. So as we said at the beginning, that's a global market. We have worked a lot with the Chinese banks to make sure they could join the auction and they could participate in a very efficient way. There's a time difference. There are the systems that need to be rolled out. So all that has been done very successfully. The Chinese banks have worked a lot with us to make sure they could access the auctions in a smooth and efficient way. That has been a great success. Having those banks joining the auctions have been a great success for ICE Benchmark Administration.
Josh King:
As we record this in London, over in New York, it's the week of the United Nations General Assembly, President Trump meeting and talking about-
Donald Trump:
We are systematically renegotiating broken and bad trade deals. Last month, we announced a groundbreaking U.S.-Mexico trade agreement. And just yesterday, I stood with President Moon to announce the successful completion of the brand new U.S.-Korea trade deal. And this is just the beginning. Many nations in this hall will agree that the world trading system is in dire need of change.
Josh King:
How do the effect of these trade commentaries affect the gold price?
Stelios Tselikas:
So we've seen gold moving sideways recently, but again, there is interest in participating to that gold auction. So we have an increasing interest from participants to be able to participate in the auction and be able to gather orders in, hedge their positions directly through the auction. Nevertheless, whatever the price does, as we've said before, our part is to make sure that we provide the platform and we work as hard as we can in order to be able to provide that robust and reliable price for investors, miners, refiners, users, everyone that is affected by those geopolitical and macro events that you've just mentioned.
Josh King:
As we sit here in London today, Stelios, the SPDR Gold shares, NYSEARCA ticker symbol GLD sits at $113. That's down from its record high seven years ago. The price of the troy ounce, $1,200, down from $1,864 back in September, 2011. You'd think with all the uncertainty that we've been talking about, the gold price would be high, yet just this year, it's fallen 9%, weighed down by the strength of the dollar. Why isn't the gold price higher considering the market unease around things like Brexit and the tariff wars?
Stelios Tselikas:
That's again a great question. And as I said before, we're a bit less interested in the price, but I will give you some elements of response from that. In 1990, when that auction process started, the first price was just shy of $5 per ounce. When we continued in the 30s, the dollar value of an ounce of gold was around $35. And when we moved to $38, that was considered as a huge movement. We continued, and as you said, back in 2012, I think where we were, the record highs of almost $2,000 per ounce. Now we're back at 1,200, but again, price is a bit relative given what we're trying to achieve. We are trying to make sure that everything works and people can trust the price, but we will let the markets worry about where the price should be.
Stelios Tselikas:
In addition, another element of that is that the LBMA, for example, is publishing an annual forecast of the precious metal prices, which is very interesting. It's gathering all the analyst views and is publishing the consensus of the forecast for the year. Again, we've seen that even though there are some major macro events and geopolitical events, those forecasts have not really changed. And a final, an anecdote on that is that as you've seen in that picture, there's an old clock where the members were conducting the last auction of the year, they would put their estimates on the back of that clock on what the price would be the same day, the next year. So we're trying to do that as well, to be honest. We don't usually get it right.
Josh King:
Do you think the classic model of investors flocking to the gold reference price for safety and reassurance will hold in the long term?
Stelios Tselikas:
So gold has been used as a global currency for many centuries. You could see reference of gold in the Old Testament, and that has continued throughout wars, through the evolution of times. So I think that that's an element that we will always have in gold and as you know, gold as a metal is not heavily used in the industrial world. There is a part which is used, but not as much as for example, silver or platinum and palladium, but again, we're always talking about the gold standard, the golden source. So that association to quality when you're talking about gold or safe haven is something which is very present.
Josh King:
So now, Stelios, the LMBA gold price is now three years in. Has it met all the expectations of the IBA and the market, and what's the long term outlook?
Stelios Tselikas:
So I think that within the last three and a half years, we've introduced some major enhancements to the process, technology governance surveillance. I think that we've met the expectations of what the LBMA was trying to achieve and what the market was trying to achieve. So Josh, in the last three and a half years, we've managed to get all the targets that we had to do in that time. We increased participation. The volumes have grown. The platform and the process is working very smoothly every day. We have prospects and we have new participants that are in the pipeline to continue to join and grow that platform. We've successfully introduced clearing. We've put governance structure in place. We've rolled out technology that is making the life of the participants easier. So yes, I think that the market expectations for IBA have been met actually.
Josh King:
All right. So I'm convinced. I'm going to go out and buy a bar of gold.
Stelios Tselikas:
Good luck with that, Josh.
Josh King:
Thanks so much for allowing me to bring the ICE House to London and hosting me today.
Stelios Tselikas:
Thank you very much. It's been a pleasure.
Josh King:
That's our conversation for this week held here in London, England at ICE Benchmark Administration. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @NYSE. Our show is produced by Rebecca Mitchell and Pete Ash, with production assistance from Ken Abel and Steven Portner. I'm Josh King, your host signing off from London, headed back to New York. Thanks for listening. We'll talk to you next week from the library of the New York Stock Exchange. Talk to you then.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, expressed or implied as to the accuracy or completeness of this information and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein for constitutes an offer to sell or a solicitation of an offer to buy any security or recommendation of any security or trading practice.
